Amazon Not Liable for Selling Product that Allegedly Caused $300K in Fire Damage

By | June 4, 2019

The United States Court of Appeals for the Fourth Circuit has ruled that Amazon.com Inc. is not responsible under Maryland law for products liability claims due to a defective product purchased on its website from a third-party seller.

The decision came after Trung Cao of Montgomery County, Md., purchased a headlamp on Amazon’s website and gave it to friends as a gift. The headlamp’s batteries allegedly malfunctioned, igniting the friends’ house and causing more than $300,000 in damages.

Erie Insurance Company, which insured the house, paid the loss and filed a suit in the United States District Court for the District of Maryland to obtain reimbursement from Amazon for negligence, breach of warranty and strict liability in tort. Erie contended that Amazon has liability under Maryland law because it was the seller of the headlamp.

However, the District Court granted summary judgment to Amazon, concluding that Amazon was not the seller and did not have liability in this case. It also found that Amazon was immune from the suit under the Communications Decency Act, a federal law protecting internet intermediaries in the online publication of a third-party’s information.

After Erie appealed, the Appeals Court concluded that although in this case, Amazon is not immune under the Communications Decency Act, the District Court was correct in ruling that Amazon was not the seller of the headlamp and does not have liability under Maryland law for products liability claims due to the product’s defective condition.

Case Background

Cao originally purchased the LED headlamp on April 9, 2014, and gave it as a gift to his friends, Minh and Anh Nguyen, who also lived in Montgomery County.

Two weeks later, the headlamp malfunctioned and ignited the Nguyens’ house, causing $313,166.57 in damages. Erie Insurance Company, the Nguyens’ insurer, paid the loss.

Cao purchased the headlamp on Amazon’s website, and the document provided for the transaction stated that the headlamp was sold by Dream Light and fulfilled by Amazon. The arrangement between Dream Light and Amazon was governed by Amazon’s comprehensive Amazon Services Business Solutions Agreement and included fulfillment services offered by Amazon, according to the Appeals Court opinion document.

Under the fulfillment program, Amazon provided logistics services for a fee. The seller could ship its inventory to an Amazon warehouse for storage and, once an order was received online for a product, Amazon would retrieve the product from inventory, box it and ship it to the purchaser.

In this case, Dream Light shipped its headlamps to Amazon’s warehouse in Virginia, and when Cao’s order for one came in, Amazon packaged and shipped it to Cao using third party shipper, UPS Ground.

As part of its fulfillment services, Amazon also collected payment, and remitted the balance to Dream Light after withdrawing its service fee. Dream Light set the price for the headlamp and created the product’s description on the Amazon site, the opinion document explained.

Appeals Court Ruling

After paying the fire loss, Erie Insurance Company filed a lawsuit in Maryland District Court against Amazon, and the District Court granted summary judgment to Amazon.

Erie appealed this judgment, contending that the District Court was wrong in deciding that Amazon was immune from the suit under the Communications Decency Act.

The Appeals Court held that while the Communications Decency Act protects interactive computer service providers from liability as a publisher of speech, it does not protect them from liability as the seller of a defective product. With this in mind, the District Court’s ruling applying the Communications Decency Act’s immunity to this case was reversed by the Appeals Court.

In its appeal, Erie also contended that Amazon, similar to a brick-and-mortar store, is a seller of products and is liable under Maryland law for the defective products it sells.

Although the document supporting the transaction indicated Dream Light was the seller, Erie argued that Amazon took so much control over the transaction through its fulfillment services program that it became the seller.

However, the Appeals Court found that in this case, there was not evidence to dispute that when Dream Light shipped its headlamp to Amazon’s warehouse in Virginia, it was still the owner of the headlamp.

“Indeed, even as Amazon possessed the headlamp in its warehouse, Dream Light set the price for the sale of the product to purchasers, designed the product description for the website, paid Amazon for its fulfillment services and ultimately received the purchase price paid by the purchaser,” Judge Paul Niemeyer wrote in his opinion. “In these circumstances, as Amazon explicitly posted on its site, Dream Light was the seller.”

The Appeals Court found that while Amazon does sell products that it owns on its website and would be considered a seller of those products, in this case, it facilitated the sale for Dream Light under its fulfillment program.

“Although Amazon’s services were extensive in facilitating the sale, they are no more meaningful to the analysis than are the services provided by UPS Ground, which delivered the headlamp to Cao,” Niemeyer continued in his opinion. “Neither Amazon nor UPS Ground was a seller incurring liability for the defective product.”

With this in mind, the Appeals Court affirmed the District Court’s ruling that Amazon was not a seller in this case and did not have liability under Maryland law for the defective product sold on its website by Dream Light.

About Elizabeth Blosfield

Elizabeth Blosfield is the East region editor at Insurance Journal. More from Elizabeth Blosfield

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